Ottawa’s rejection of the proposed $815-million Prosperity gold and copper mine has rattled the mining industry, especially in British Columbia, the busiest region for new mines in Canada.

The B.C. government had approved the Prosperity mine in a review that concluded the economic benefit outweighed environmental destruction – a lake was to be drained to be used as a pit for the waste tailings from the mine. However, the federal government rejected the mine development on Tuesday, as Environment Minister Jim Prentice concluded that an environmental review was far too “scathing” to allow the mine to be built.

The rejection sent shares of Prosperity developer Taseko Mines Ltd. reeling, closing 25 per cent lower at $4.94, on the Toronto Stock Exchange on Thursday.

The ruling shook the mining industry. Federal approval had been “widely anticipated,” according to analyst Adam Graf of Dahlman Rose & Co. in New York, and Taseko expected a positive decision. The company had been holding job fairs, filed regulatory documents to raise money to fund construction and hired a vice-president to oversee mine operations once it was built.

But the rejection isn’t a severe setback for the quickly growing mining business in B.C., according to prominent industry spokesperson Pierre Gratton, chief executive officer of the Mining Association of British Columbia. He noted that three mines – capital spending of more than $1-billion – are under construction and a fourth is set to go.

“The announcement was a blow, particularly because [Prosperity] was the largest of them, but it would be wrong to give the impression that B.C.’s mining sector is in trouble in some way and to not recognize there’s a lot of growth happening,” Mr. Gratton said.

At the heart of Ottawa’s rejection was the proposed destruction of Fish Lake. Taseko had proposed to build a replacement body of water for Fish Lake, which is revered by first nations. The local Tsilhqot’in National Government staunchly opposed the mine and refused revenue-sharing deals.

The project was predicted to generate some $5-billion of economic value over the mine’s two-decade life and the promise of about 1,000 direct and indirect jobs was eagerly awaited by many people in the region around Williams Lake in the B.C. interior. Located 125 kilometres southwest of Williams Lake, which is home to about 11,000 residents, Prosperity was a potential revival for a place whose traditional bedrock industry of forestry has been devastated by the mountain pine beetle, leaving the local economy in tatters.

Taseko had considered 17 alternatives options for a tailings dump. Only a few were viable, said company vice-president Brian Battison, and would have added several hundred millions of dollars to the project’s cost, compared with the Fish Lake option.

Mr. Prentice hinted that Ottawa would consider a re-tooled proposal for Prosperity. Mr. Battison said the company first wants to hear the reasons for the decision.

“What do we have to bring forward that’s acceptable to the fed government?” Mr. Battison said.

Prosperity was Taseko’s major growth project and several analysts cut their price targets and ratings on the stock. BMO Nesbitt Burns Inc. said it had estimated Prosperity’s value to be about $3 a share while the rest of Taseko was worth $4.78.

Alongside the rejection of Prosperity, the federal government on Tuesday “granted federal authorizations” for the $915-million Mt. Milligan mine to proceed. Owned by Thompson Creek the project – where some building has already begun – in fact had been officially approved by Ottawa almost a year ago, last December. Thompson Creek had been waiting for a so-called “schedule 2” exemption, which had been expected by July. The exemption was needed to use a creek valley to store tailings, a plan that had been okayed in the general approval.

Because the schedule 2 exemption hasn’t been officially published in the government’s Canada Gazette, Thompson Creek said it could not comment on the government’s announcement.

Prosperity isn’t the first mine to be rejected during the ongoing mine-building boom in B.C. In 2008, a joint provincial-federal review ruled against the $190-million Kemess copper-gold mine in northern B.C. Kemess also proposed the destruction of a lake to store tailings.

Still, the rejection of Prosperity does not signal that it will be more difficult to get mines approved in B.C. or elsewhere. Last spring, the Harper government changed key rules around environment assessments, which Mr. Prentice at the time said would ensure “that we get good environmental outcomes” while “not delaying and frustrating projects through unnecessary red tape.” Critics said the changes would “gut” environmental reviews.

Mr. Gratton said miners with proposed projects in the new review system feel it’s an improvement. Taseko, as an example, had spent about $100-million on Prosperity, to plan it and try to get it approved.

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